Bonus Depreciation Changes

Your Guide to State, Local, Federal, Estate + International Taxation

As many of you may know, the Protecting Americans From Tax Hikes (PATH) Act of 2015 extended the bonus depreciation rules through 2019. The Act also calls for a gradual reduction in the percentage: 50% in 2015 – 2017, 40% in 2018, and 30% in 2019. The law then expires after 2019.

What you may not know is that is that PATH also created a new class of property (because the depreciation rules weren’t complicated enough). Beginning in 2016, the PATH Act creates the “qualified improvement property” class of asset. Qualified Improvement Property is defined as improvements to the interior of any nonresidential real property that is placed in service after the building is placed in service. It cannot be structural in nature and cannot be an elevator, escalator or enlargement of the building.

Also, qualified improvement property must be classified as having a 39 year depreciable life. This differentiates it from qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property, all of which have a 15 year life (like I said, complicated). This is the first time that bonus depreciation is available for a 39 year property.

The PATH Act makes other changes to the bonus depreciation rules which are not covered in this blog.

As always, consult your tax adviser before applying these new rules.

Rick Schultz, CPA